98% of ICOs are Doomed to Fail?
“98% of ICOs will fail .” Yibo Shao, a well-known venture capitalist in China, said.
As blockchain and cryptocurrency fever gets hotter, Yibo Shao(also known as Bo Shao) shared his own views over this hype on the Wechat Moments last week.
The overwhelming majority of ICO(Initial Coin Offering) investors will end up taking a loss; ICOs will not replace traditional VC funding models; investing in ICO is a bit of a gamble in and of itself, as Mr. Shao mentions.
The veteran angel investor, who jumped on blockchain in 2013,also emphasizes that blockchain is able to reshape various industries, but this process will take time and need to be upheld by capable and patient entrepreneurs.
Yibo Shao is the co-founder and managing partner of Matrix Partners China, a leading VC firm in China with a focus on the technology sector. He founded Chinese online auction house EachNet.com and served as its CEO until its acquisition by eBay in 2003. Jack Ma regards him as an e-commerce genius.
Shao’s detailed response to the blockchain and cryptocurrency fever as follows:
1.98% buyers of ICO tokens will lose all of their money.There are only a few companies are well-suited to blockchain-powered tokenization pattern. Even if a company suits such pattern, its business’s success does not mean its token will be valuable. Only a few tokens out of thousands will make a hit.
2.ICOs will not replace VC funding models. Investing in start-ups requires professional judgment and great patience. Only Large, mature companies are suitable for public to invest in. There is a good reason for financial regulators, like China Securities Regulatory Commission(CSRC) and the U.S. Securities and Exchange Commission(SEC), to exist.
In 1998, many immature companies rushed headlong to become listed. Buying stocks at that time did not mean to do investment，but equaled to gamble as stock buyers knew very little about the market. Now, ICO projects lure potential backers with little more than a white paper, which is more exaggerated than what happened in 1998. So ICO bubble could be even bigger, and investing in ICO is a bit of buying lottery tickets.
3.Finding root in the start-up scene is a painstaking task. Most start-ups will fail. If a venture capitalist pours money into all of the projects he has seen, he will fail to regain his original capital. But when the wave of ICO excitement goes away, most tokens will plummet to zero given most blockchain start-ups are not supported by market fundamentals.
4.The ICO casino may operate for a period of time because you can not predict its ending, win or lose, very soon.The bigger this casino is, the higher the token price will hit, granting early entrants the illusion of success. And the longer the ICO fever lasts, the worse the result will turn out to be.Sure, a handful of investors will achieve financial freedom via ICO by luck, as well as scammers.
5.The above mentioned does not mean that I am bearish on blockchain. I marched into the field as early as 2013, and still believe that blockchain will reshape many industries, but it will take time, and needs to be assisted bycapable and patient entrepreneurs.
Source: Ernst and Young
The surprising rise of ICOs has helped blockchain companies raise $3.7 billion in 2017, but this growth rate has slowed down. According to the latest research published by consulting firm EY, the volume of ICOs has been shrinking since late 2017, and less than a quarter of ICOs reached their funding goals in November, compared with 90 percent in June.Moreover, 10% of funds raised in ICOs have been lost or stolen.
As an international consensus is building on ICO regulation, blockchain projects will find it harder to raise money through this means and investors should watch out for ICO scams and policy risks.